Client Alert: Passage of SB 1069

From: Spencer Scheer
Subject: Passage of SB 1069-Expansion of Anti-Deficiency Protection. Further Limits on Ability to Obtain Deficiency Judgment.
Be prepared for a flurry of new California and federal legislation governing foreclosures, consumer financing and evictions (especially SB 900).

The latest in CA foreclosure legislation is SB 1069. Below is a brief recap. No need to panic. Again, like most of the legislation being passed, it is effective on 1.1.13. It will call for lenders to understand their rights both at loan origination (so to properly characterize and structure loans) and upon default, so that effective remedies can be pursued.

Enacted: S.B. 1069 (Amends C.C.P. § 580b). Extends Anti-Deficiency Protection to Refinances of Purchase-Money Loans or Failure of Purchaser to Complete Contract of Sale.

Background:

• Anti-Deficiency Rule – General Rule. [1]
• Present Case Law Interpreting Refinancing of Purchase Money Loan:
• New Lender=Thought not to be subject to Anti Deficiency statute. But a non-Judicial foreclosure by the lender will extinguish ability to make claim in any event. Must judicially foreclose.
• Same Lender=Same Debt and Collateral= Generally subject to anti deficiency prohibitions.

Impact of Legislation: Confirms that no deficiency judgment may be obtained on any loan, refinance or other credit transaction that is used to refinance a covered purchase-money loan (also to purchasers who do not complete contact of sale i.e. seller carry back sales).

• Effective Date: Loan and extension of credit used to refinance a purchase-money loan, which is executed on or after 1.1.13.
• Covered Loans: Purchase-money loan secured by deed of trust or mortgage on 1-4 unit property occupied entirely or in part by the borrower, when loan is used to pay all or part of the purchase price.
• Note: This brings up the question of whether a lender should make separate loans, if a refinance loan is used to pay off some purchase money indebtedness, and some that is not.
• Exceptions: Only to the extent that the lender advances new principal which is not applied to any obligation owed or to be owed under the purchase-money loan, or to fees or costs or related expenses of the refinance.
• Application of Payments: The Bill further provides that any payment of principal for a refinanced purchase-money loan must be applied first to the principal balance of the purchase-money loan, and then to the remaining principal balance.

NOTE: For a comprehensive review of new legislation and case law developments in CA foreclosure, bankruptcy and eviction law, please sign up for SLG’s webinar on 9.20.12. You will not find better value for the time and money spent.